The Study Of The Allocation Of Control Rights In The Process Of Venture Capital

In recent years, our country has experienced a quick development in the Venture Capital. Venture Capital Institution that are financially sound and operationally specialized have been playing a more and more important part in the country's high-tech transformation and its development in sci-tech industries. The dominant feature of Venture Capital, its high uncertainty, is the root of the emergence of the issue about the allocation of control rights in venture capital. It is very important to allocate efficiently control rights between the entrepreneur and venture capitalist, because it can exert a direct influence on the entreprise's success.In fact, allocation of control rights is also a very complicated problem: For ong thing, it depends on many factors, such as information asymmetry, involvement restrictions, effort, negotiation power, and so on. For another, an effective allocation of control rights can be realized by employing different tools. It is a very difficult as well as an essential one in Venture Capital process.The paper deals mainly with the venture enterprise's control rights during venture capital process and researches into the control rights allocation by model analysis, which is based on agent theory of information economics, incentive theory, trading cost theory and other relevant theories. Then it draws several conclusion as follows: (1) The more asymmetric the information is between the venture capitalist and the entrepreneur before their concluding a contract, the more control rights will the capitalist possess. However the higher quality information is available to the capitalist after writing the contract, the less control rights will the capitalist gains. In addition, the higher the ratio of K to B is, the less will the control rights be allocated to the capitalist. (2) Throught establishing the model based on equilibrium between the ventureenterprise's effort and venture capitalist's effort, the result that the proportion of equity β isincreasing gradually by the importance of venture capitalist's effort not increasing or decreasing in the process of investment all the time are found. (3) Throught a comparison of three different financial tools, it reaches another conclusion that such compound financial tools as transferable bonds, transferable preference share are ideal tools for realizing the allocation of the enterprise's control rights. (4) The thesis gives part of the above conclusions some proof via a case study. This thesis serves as a guidance and reference to provide certain theoretical value to the way of allocating control rights in the process of venture capital.